NZ short term economic outlook
After several years of restrictive policy bringing inflation under control and on a solid path to recovery, someone decides to go play in the sand and here we are with inflation back on the table as a direct result of cost increases in production and distribution brought about by fuel price increases.
The OCR held at 2.25% on 27th May, but only just, with a 4 to 3 vote by the Monetary Policy Committee to hold with warnings of imminent increases.
With the RBNZ inflation target between 1% and 3%, current inflation from April at 3.1%, which was easing, but now with upward pressure, is expected to peak at 4.3% by the September quarter.
This all points to a likely 0.25% increase in the OCR on 5th July followed by another 0.25% OCR increase on 2nd September and wait and see on October 28th. The aim is to return to the 2% inflation target midpoint in mid-2027 once inflation starts easing and we’re back on track with our recovery, provided things settle down in the Middle East where right now, it’s anyone’s guess.
What we’re reading from RBNZ says it’s the most likely scenario however it is complete conjecture with a sprinkle of tea leaf reading and a case of watch this space. The next inflation announcement is on 21st July.
So the result of all this is a likely couple of small increases in interest rates in July and Sept following the OCR tweaks but nothing like we’ve had in the last few years and set to delay by a few months rather that derail the recovery. We also have a secret weapon in Reserve Bank Governor Anna Breman who tends to lean to the stimulative side maintaining lower interest rates in a bid to strengthen the economy.
GDP is up 0.2% in the Dec quarter with a 1.3% year on year increase, this is a figure we want to see improving being one of the key drivers in economic recovery, March quarter GDP figures will be released 18th June. Click on the link to the Reserve Bank GDP report >>>https://www.rbnz.govt.nz/statistics/series/economic-indicators/gross-domestic-product
Banks have strong capital and funding buffers meaning they are well placed to support customers who may be struggling, as well as manage stresses in offshore funding markets. Stress test results demonstrate that banks can withstand significant economic shocks, including geopolitical events like the Middle East conflict. Click on the link to the Reserve Bank report on financial system resilience >>> https://www.rbnz.govt.nz/news-and-events/news/2026/05/financial-system-resilient-amid-heightened-global-risks
While this is all going on its important to keep an eye to the future with the realisation that we’re actually in relatively good shape and would be on a strong path to economic recovery save for the intervention of geopolitical events and effects on inflation, that once this period is over and it all settles down that we can move forward with confidence and back on our path to recovery.